Enforcement and the Exchange of Information

Enforcement plays a central part inthe operation of well-run capital markets. It is essen­tial for a securities regulator to be diligent in administering the laws and rules and to take effective enforcement action against those who contravene them. Only by taking strong and immediate action can the regulator send a message to the market that wrongdoing will not be tolerated. In many countries that have been assessed, enforcement is very weak, in part because of an inadequacy in resources and insufficient authority.

Enforcement is one area where securities regulation differs markedly from banking supervision. As with bank supervisors, securities regulators are responsible for oversee­ing market intermediaries and their relationship with their clients. However, securities regulators also are responsible for overseeing the markets more broadly, including the regulation of collective investment schemes and their advisers or operators, as well as the supervision of issuers and listings. Thus, to achieve their investor protection objec­tive, securities regulators must cast a broad enforcement net as they seek to detect and deter fraud, including accounting and financial fraud, in both organized and unorganized markets, between intermediaries and their clients, and in public statements by issuers. In addition, the scope of cooperation and exchange of information among securities regula­tors for law enforcement purposes is often quite wide ranging, going well beyond the safety and soundness information. Those and other considerations pose challenges in the assess­ment process. Some of the issues in assessing enforcement are highlighted in Annex 5.F.